04/02/07 — Auto tax hike proposal worries dealers

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Auto tax hike proposal worries dealers

By Andrew Bell
Published in News on April 2, 2007 1:45 PM

Legislation being considered in Raleigh could more than double the state's Highway Use Tax, a move that has local car dealers concerned.

The intent of Senate Bill 1201, which is sponsored by five-term Sen. Daniel Clodfelter, D-Mecklenburg, is to address North Carolina's various infrastructure needs by providing permanent sources of money for those projects.

One of the funding sources he proposes is raising the current 3 percent Highway Use Tax to the level of the state's combined general sales tax, which is 6.75 percent.

The bill also suggests the state eliminate the trade-in allowance offset when the tax is applied.

For example, if someone went to a new car dealership to buy a new $25,000 car and to trade in his car valued at $5,000, the taxes for the new vehicle would nearly triple, Frema Motors general sales manager John Harris said.

Currently, the tax on a new $25,000 car with a $5,000 trade-in is about $600, Harris said. But the elimination of the trade-in allowance offset program and a Highway Use Tax increase would end up costing the customer about $1,700 in taxes, he said.

"This will prevent people from buying new cars because they can't afford the taxes," Harris said.

Clodfelter's bill says the trade-in allowance offset should be eliminated because "a transaction in which two parties exchange motor vehicles is considered a sale regardless of whether either party gives additional consideration as part of the transaction." As such, that transaction and sale should be taxed.

Harris said he believes the combination of the tax hike and the elimination of the trade-in offset will cut into vehicle sales and end up losing the state revenue, instead of increasing it.

According to North Carolina Automobile Dealers Association statistics, the state's automobile dealerships generate $20.4 billion in sales annually. Harris said new car and truck dealerships account for almost a quarter of those sales.

If the proposed taxes change, fewer people will purchase new cars, which accounts for two-third's of Frema Motors' sales, Harris said. He added that the tax change could add as much as $40 more per month on a new car payment, which might make a new car purchase unaffordable for some buyers.

"I think this is the wrong move," said Keith Austin, new car sales manager for Chevrolet Cadillac of Goldsboro.

Consumers are already required to pay property taxes on a new vehicle and Austin said it is unfair for the state to consider passing off a higher Highway Use Tax on the consumer.

Austin said he believes the tax increase, if approved, will force more people to buy a vehicle that is not their first choice, but something that is less expensive.

Members of the N.C. Automotive Dealers Association are expected to meet with legislators Raleigh soon to discuss the proposed tax hike.

The bill was sent to the Finance Committee last week for discussion.